Data Driven Investing with Neal Bawa

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Jacob: Hi, and welcome to The Real Estate Way to Wealth and Freedom Podcast, Episode 192.

I’m your host, Jacob Ayers. Thanks so much for tuning into yet another episode. Well, this week’s guest is a really exciting one and I’m super excited to have him on the show. His name is Neal Bawa. Now, I recently met Neal at The Best Ever Real Estate Investing Conference in Denver, Colorado last month, and he is just a pleasure to talk to. He’s a really, really intelligent guy and he has a different perspective on real estate.

See, Neal calls himself a mad scientist because he comes at real estate from the technology perspective, where he’s very numbers and data driven.

Well, it’ll be interesting to hear what Neal has to say about the world of real estate investing and how he sees it with his numbers and data science kind of perspective.

Without further ado, let’s jump into this week’s episode.

Jacob: All right, today I welcome on the show our guest, Neal Bawa. Hey, Neal, thanks so much for joining us.

Neal: Thanks for having me on the show, Jacob. I’m very excited to be here.

Jacob: Yeah, it’s our pleasure. Hey, Neal, for the audience members that don’t know you, can you tell us a little bit about your story, your background? You got a unique perspective on real estate, so kind of walk us through your journey up to this point.

Neal: Yeah, I’m not the typical real estate guy. I don’t have a broker’s license. I haven’t flipped 100 homes. I haven’t done 1,000 loans. I’m a technologist. I have had a long and successful tech career and I’ve had a successful technology exit and I took the money from that exit and started basically investing into single family and then started doing triplexes and then I started investing into syndications. And out of all of those, I found that syndications made the most amount of sense.

I did that passively, found 13 different syndicators that were syndicating multifamilies and student housing and hotels and retail and started learning from them. I started learning by offering my services. I’m an internet marketer, I have expertise there. I offered those services and in return, many of them mentored me and taught me a lot of things that I found were just mindboggling.

It’s like, “Wow, stuff like this is not in any book! It’s not in any podcast! It’s nowhere, right?”

Jacob: Yeah.

Neal:So, how come people don’t talk about this stuff? So, I said, “Before I forget all this crazy stuff that I’m learning, I need to somehow find a way to remember it,” so I started together with a couple people, started a Meetup group in the Bay Area that was just multifamily focused. I thought, I’m going to get 50 or 100 members and at 4,400 people, it’s now the largest in the United States.

Jacob: Wow! That’s a lot!

Neal:In the U.S. And it sort of kept growing because people liked the fact that I would come in and do a presentation and I would tell them, “You’re actually standing in the technology company that I work in. I’m not a tech guy, I don’t have anything to sell, I just know all these amazing, cool things about multifamily that I’m learning, and I need to get it out of my head and tell people about it.”

People really loved that because there was no pitch! I had nothing to sell. I was a tech guy talking about real estate and about how my passive investments were being optimized through a lot of interesting things that I was doing.

I loved it. I kind of became a mini-celebrity in that multifamily in the San Francisco Bay Area and sort of kept growing that. And as I was coming to the point where I was getting out of my technology career and doing the exit for the company that I was selling, I said, “This seems like something that I can do and do well.”

I got more serious, did some informal syndications, then did some formal syndications. I found a mentor who became my partner. Basically, it just sort of went from there and now we have $150 million portfolio with 1,800 units. We’re adding over $100 million to our portfolio this year so sort of just happened.

Jacob:That’s awesome. It’s always so fascinating to hear real estate investor’s backgrounds because very rarely is it really real estate investing, right? I tend to see a lot of engineers and accountants and people like that that have turned real estate investors. You being the data scientist, technologist guy, really cool. You got some unique perspectives on real estate. At the end of the day, real estate investing is about the numbers, so a really important quality to have with your background.

You mentioned you kind of got your start in the single family, small multis triplexes space, which so did I, so I’d really be interested and keen on hearing your take there, what you learned kind of playing in that space before you transitioned to the larger, multifamily space. What kind of lessons, takeaways, did you pull from there and then why did you start there?

Neal:Actually, I started in reverse and I’ll tell you the whole story.

Jacob: Oh, okay!

Neal:Most people start with single family. I started with a 27,000-square-foot new construction project for my business, for the actual business.

Jacob: Yeah, okay.

Neal:The senior partner in the business, my CEO, came to me in 2003 one day and said, “We’re making lots of money, we’re not going to rent office space. I’m just going to go buy an office.” I was like, “Awesome, boss. I really hate this landlord.”

He comes back 10 days later and he’s like, “I have bought it.” I’m like, “I’m so happy.” Then he drops a bomb on me like a large nuclear weapon, 1 megaton. And he said, “Well, what I really bought was this empty shell. It’s 27,000 square feet. It has four walls and a 22-foot-high ceiling. There’s nothing actually inside of it, Neal. And I’m like—

Jacob: Good!

Neal: We have nine months left on our lease with a landlord that doesn’t like us. What the heck are we going to do? And he’s like, “You’re going to build it!” I’m like, “What? I don’t know the first thing about building anything. I’ve never even rented a single family house.” He says, “What are you talking about?” He’s like, “No, no, no. I know lots and lots of great stuff and I have these other GCs and we’ll just work together and somehow we’ll get it done.”

After that began this nine-month period where I was just terrified and couldn’t sleep because I knew we were going to get kicked out on the 4th of July 2004, from the office that we were renting and basically would be on the street with our business on the street. So, it took us exactly eight months and 29 days to complete that. It was just trial by fire and when we got done, it was great. I was like, “Wow, this was insane.” But I learned a lot. I learned an incredible amount of stuff about construction and fire codes and all these kinds of things.

And then in two years, our company grew so much, partly because of what we did there, that we ran out of space again. This time, there was a building behind it, but it was $3 million more and was larger. I was like, “Hm, I don’t really have that kind of money to buy this whole building,” so I came up with this weird idea. The weird idea was, there’s all these doctors in Fremont and these doctors are pretty rich, so what if I go to these doctors and tell them, “How about I buy this building and you buy a 2,000-square-foot suite inside of this building? I’ll build it. Once again, it’s all four walls, so I got to build it from scratch. And then when I’m done, I’ll rent it back from you.”

I’m thinking, even as I’m pitching this to people, it’s like, “These people will be total idiots to actually do this.” What I didn’t realize was, I was the idiot. I didn’t charge any fees to build it. I didn’t charge any profit splits. What I did was gave a bunch of doctors a year of free labor to build beautiful suites for them and then rent it back from them forever.

Since 2006, now it’s 2018, I’ve sold that business, but all of those suites are rented. Eventually, I realized just how sweet the deal was for the doctors and that what I’d done is called syndication. I didn’t realize that that was a syndication until three years later. Then I was like, “Wow, there’s so much money being created here. Why don’t I get more involved?”

Then I went to a city called Madera, California. Statistically speaking, it was hit the hardest in the United States. Prices have gone down by 71%. I basically picked it off of Zillow. I looked at 4,000 markets on Zillow. I found the one that had the highest drop. I went to Madera and I bought 10 homes there in a single year. Then I discovered I didn’t like being the property manager and if I hired a property manager, then basically there wasn’t a lot of cash flow. It was a non-scalable sort of thing.

So, I got my wife’s name off of those 10 homes, went to Chicago and bought 10 triplexes. Though is scaled better, same problem. Now you have 30 tenants to deal with and you’re still the property manager because the property manager doesn’t do a good job.

I was like, what happens when people want to scale beyond this? This is non-scalable. It’s fine that I started there, but everybody, when they get to the 5-year or 10-year mark in their life, must want to do something that’s much more scalable and professional. That’s when I found multifamily syndications. When I looked at those syndicators and how scaled they were, they had CFOs and accountants and they had asset managers and they had their own property management companies.

Then I said, “Okay, this really scales. This is what I want to do.” I was running a company with 400 employees, so I knew that scale is the way to grow in your life and get true passive income. Over time, I moved a lot of my assets into passive syndications and that’s really how I got started. That was in the 2009, 2010 timeframe.

Jacob: Really interesting story and I knew you had some interesting back story there. You became an accidental syndicator, which is almost unheard of, right? Who accidentally syndicates a several-million-dollar office building? Now many people just fall into a deal like that.

You learned some real hard lessons. Like you had mentioned, trial by fire, got that first deal completed like what, one day before you really had to move out of your office building into the new one? I’m sure some really good lessons and takeaways there.

Neal: Yes.

Jacob: Then you realized—

Neal: Three days with no sleep there, by the way. We had **** [0:09:17.6] to get that done.

Jacob: [Laughs] Wow! So much crazy store there. Then you’re investing in the single families and then you scale up to the triplexes. You’re really looking for that scale. You’re coming at it from a business mindset, from this technology background, wanting to grow and operate it with scalability. You realize that you really can’t do that that easily anyways, in these smaller, multis, so you transitioned to multifamilies and go to intentionally syndicating deals this time, it sounds.

Neal: Yes. I think some of that was because of a pet peeve that I saw in the industry. I was pretty happy with just taking my money and dolling it out to other people that were doing the job and just sitting back and watching them perform. I was pretty happy with that.

But then what I started noticing was, even though these people were successful, and they were giving me cash flow and they were giving me upside, things were working, but I could see very easily that none of them had adopted cutting edge technology. Many of them were just ignoring the data.

I would have a syndicator and his city would be doing really well. Like by that time, I could tell that when cities are doing well and when they’re going up and when they’re going down. This syndicator is, let’s say in Houston. This is a real story.

I go and invest with them in Houston because I know Houston is going to do really well and there’s not a lot of supply and there’s lots of demand.

Then three years later I start seeing that Houston is doing poorly, and the supply has basically gone up and the demand has gone down. I go back to this syndicator and I’m like, “Why are you still doing projects in Houston?” The answer is, “We have all these back channels and we have all these connections and this team, so we’re going to continue doing stuff here because it doesn’t make sense for us to go and build these things elsewhere.”

I found that to be a total cop-out answer, Jacob. That’s not a good answer. That’s not what you tell investors. What you tell investors is, “I realize that this area is slowing down, so I’m building something in Salt Lake City or I’m building something in Denver, it’s just not built yet.” Maybe that’s a better answer, right?

Jacob: Yeah.

Neal: But what you don’t say is, “I’m really comfortable. I know everybody and everybody knows me, so I’m continuing to buy here even though I know that the market is slowing down.” But syndicator after syndicator was telling me that.

What I realized was a lot of these people were lazy. They weren’t truly tied to data. There was just selling data in presentations by picking it up from the markets **** [0:11:16.5] offering memorandums, all those nice graphs and charts and sticking it there. But they truly were not imbibing data the way I was. I loved the analytics around cities. I love to see cities change over time. Orlando become such a powerful city, Phoenix has recovered from a crazy crash. Las Vegas recovered from a crazy crash. Then I saw those cities growing and I said, “No one is really focused on this. No one has a model where every year you establish a new list of cities and every year when you see the best cities in the U.S., you go invest there.” Yes, it’s harder because you’re creating entirely new teams, property management and contractors and asset managers in each metro, but why doesn’t anybody do that?

The answer is because they’re not tied to the data. So, I said, “That’s going to be the thing that distinguishes me. I am going to follow the job growth trend, the GDP trends across America and I’ve done exactly that. I now have properties in eight different states, and I know that’s eight times harder, but my investors are the beneficiaries of that. I’m the one working 20 hours a day. They’re benefiting from it. That pet peeve is what really took me from being passive to becoming active because I wanted to do something that other people hadn’t done.

Jacob: Yeah, that’s interesting and that’s what I really enjoy about real estate investing, is it’s a numbers-driven industry and at the end of the day, the numbers don’t lie. But I can recognize what you’re saying when you look at some of these different offering memorandums and you see like Nashville is rated the number one best place in the U.S. by such-and-such source. Sacramento, rated number one place by such-and-such. There’s always these contradictive, like every place is the best place to live, top 10 place, top 10 growth places, top 10 places for millennials.

Neal: Yeah! You’re going to get rated for something, right? Some of these ratings are not even trustworthy. Some of these are magazine hacks that are writing whatever the hell you want them to write.

One of the things that I do every year is at the beginning of the year, I spend about 100 hours of my time and 200 hours of my virtual assistant’s time to put together every one of those ratings. They all come out at the end of January, beginning of February, and I put all of them together. Then I take the ones where there’s consistent trends. Like for example, right now, almost everybody thinks that Boise, Orlando, Las Vegas, and Phoenix are really great markets. Almost everybody does that. They may not be number 1 in every ranking, but they’re in every top 10.

What I do is I basically take that information, I collate it together and I say, “Here’s the real rankings because now everybody in the U.S. agrees that these are the right rankings.” I don’t have my own ranking, but I can clearly see that these cities are in every damn list. Those are the ones to go after, rather than all of a sudden you see Grand Rapids, Michigan in one list at number one and then you don’t see it in any other list. What’s going on there? Maybe they forked out some money to somebody.

I’m not saying Grand Rapids is a bad metro, it’s just an example.

That was another thing that everybody has got this, “My city is number one for something.” Of course, every city in the U.S. is number one for something. The key question is, how many different kinds of things is it in the top 10 for? That’s what tells you what the great cities are. Not 1 in Number 1 ranking.

Chicago is highly depressed, they’re loosing population. They’re still—go to the Chicago City website and they’re still like, “We’re number one for X, Y, and Z.

Jacob: Yeah.

Neal: That doesn’t mean Chicago is a great place to invest. It’s a horrible place to invest in right now.

Jacob: That’s really interesting. Are you collating data from these different brokerage firms and things like that or are you going out and sourcing your own data, looking at demographic trends and economic trends and things like that? Which approach is it?

Neal:Well, I’m doing both, because to be honest, I don’t find that the brokerage’s data is bad. They’re doing what they’re doing, they’re not making anything up. They’re gathering it from somewhere and in certain cases, they’re paying a lot for that data. Maybe they have a CoStar subscription, a Yardi Matrix subscription, an Axiometrics subscription, so they’re getting the data from there, so I don’t think that there’s anything wrong there. For the record, they’re fine.

But then there’s analytic services that I’m paying for. I pay for HousingAlerts.com. I pay for LocalMarketMonitor.com. I pay for NeighborhoodScout.com. I’m looking at all these pieces and I’m looking at their rankings and I’m looking at what the brokers are putting out and what the websites are putting out. Realtor.com has lists. ApartmentList.com has lists. So does Zillow, so does Trulia.

I’m looking at all of those and saying, “Okay, what are the commonalities?” Sometimes I can recognize that this list has actually come from this data source because the list is identical. For example, if you go and look at any of the Forbes top ten lists for any year, at the bottom of the page, they say “Data sourced from Local Market Monitor.” I know exactly what analytics firm it’s coming from.

There’s many other firms there as well and so I think taking the data together and looking at trends, reading the tea leaves is very powerful because then you can tell which metros are really going in the right direction.

I’m also looking at forecasting services. It’s not important to know that Las Vegas has the highest rent growth in the U.S. right now. It’s obvious that it has the highest rent growth.

What I’m interested in is, what is going to have the highest rent growth 12 months from now? That’s where I’m going and that’s what I’m trying to figure out constantly.

Jacob: When you’re talking about those trends, what are some things you’re looking for? Whether it’s job growth, population growth, population diversity or age? What kind of things are important to you and what do you value when you’re assessing these new markets?

Neal: Number one is population growth, and I’m not just looking for population growth, I’m looking for a specific amount of population growth. I want at least a 1% population growth per year. All of the really awesome cities in the U.S. will easily match that.

Then I’m looking for, beyond that, I’m looking for median income growth. I want the income levels to be growing by 1-1/2% a year. 1% population to 1-1/2% a year in income growth.

Then I want the median home value to be growing by 2% a year, 1-1/2, 2.

And then I want crime levels to be below a certain level. I use City-Data to set a crime level of 500 or below, but you can see lots of different websites and you can set your own levels.

Those four together allow me to pick the best cities in the U.S. and those four metrics are how I rank them.

The fifth metric, which is the Uber metric, it’s the most important, is 12-month job growth. What’s nice is you can get 12-month job growth from lots of sources on the internet. I get it from the DepartmentOfNumbers.com.

Jacob: Yeah, really interesting. Obviously, for obvious reasons, you want population growth, you want income growth, you want household median increase in values.

Now, when you’re talking about median home values, do you worry about too much increase? Let’s say if you’ve got like a bubble market, like maybe Denver or San Francisco, what if you’re at 8, 10, 12%, this unsustainable number? Does that frighten you any?

Neal: It frightens me a lot, because obviously, that market is doing really well. It’s climbing, everything else is going well, but its home prices are going so fast that at some point it has to stop or reverse. The two markets in the U.S. that I’m most afraid of are Denver and San Francisco. Those are the markets that just make no sense at all.

What I do is, I pay for LocalMarketMonitor.com. They have a ranking, which says, what is the median home price in this market, and then what is the income price in this market? Let’s say the median home price is 300,000, but the equilibrium income price is 200,000. That’s what prices should be at. It’s okay to be 10% over. It’s okay to be 20% over. But Denver is 44% over median income price.

What that means is Denver’s growth is unsustainable and at some point, it must drop. It must drop because people can pay an excess of the income price for a few years but in the end, it’s going to come down. I’m not going to say it’s going to come down all the way to that income price, but it might come down halfway. Instead of it being 45% above income price, it might come down to 22. That’s still catastrophic.

So, from an income price perspective, if a metro is more than 20% above the income price, then I tend not to invest there. At this point, that’s one of the reasons I’m not investing in Dallas. It’s a great metro. In my mind, the best metro in the U.S. for the long-term growth, but right now, that income price is well above 20%.

Denver is the worst in the U.S., San Francisco Bay Area right after that. There’s also some other markets like Nashville that have really started to get up there.

So, if it’s 10% above, 20 even, 25% above, you’re okay. There’s still potential for future growth there on the home prices side. Because I’m a multifamily guy. I’m interested in rent growth. Well, if home prices are going down, guess what happens to rent growth? I really can’t invest in those sorts of places.

And this is why sometimes they come up with very interesting and surprising things that I get bashed on the internet for. For example, two or three years ago, I was talking about Sacramento and Las Vegas. People are like, “Are you crazy? Sacramento? Vegas? These are horrible markets to invest in!” The answer is, no, they were horrible markets. They built nothing from 2008 to 2015. They have a huge vacuum. Clark County in Vegas is the fastest growing county in the U.S. for population. Sacramento has high population growth because of the 100,000 people that run away from the Bay Area every year.

Have you not been watching these trends? I was vindicated. Last year, Sacramento was the number one metro in the U.S. for rent growth. This year? It’s Las Vegas.

Jacob: Now, when we’re saying this, Neal, number one market in the U.S. for rent growth, is that a real number? Is that a real statistic or is this some magazine-quoted stat?

Neal: The short answer is no, because rent growth is usually provided by enterprise-level companies that are selling data for $25-250,000 a license. CoStar, Yardi Matrix, Axiometrics, that’s where the data comes from and they don’t agree all the time. Right now, Yardi Matrix has Las Vegas as number one in the U.S., but at number two, CoStar is still at number two. So, it’s not going to be number 16. The rent growth data is purchased for very expensive prices. There really aren’t any hacks in that marketplace.

Jacob: Yeah, it’s all about the source. If you go to City of Sacramento’s city website or whatever it is, obviously they’re a little biased about their municipality, right?

Neal: And it’s backed up by someone else who is also reliable. If there is a trend, then it’s not possible for only one party to see. The trend will be visible and also remember, multifamily and single family are connected together. One of the greatest benefits that we have in multifamily, Jacob, is that if you see massive home price growth in the market, then 18 months later, you’re going to see massive rent growth.

It’s like I have a crystal ball. It’s an 18-month crystal ball that tells me where that market is going to be 18 months from now because rents only go up once homes become so expensive that no one can buy. Even people with money cannot afford homes and so now they go out and rent, but they have money! They’re not looking for bottom-feeder rents. They’re looking for mid-tier and high-tier rents, so they drive up the rent market.

Jacob: Yeah.

Neal: I’ve seen this over and over and over again. Two years ago, when Las Vegas had 12 and 13 and 14% a year home price appreciations, I was telling my students, “Hey, just so you know, I’m putting my money where my mouth is. I just bought a $30 million building in Vegas.” I’m raising rents on that building right now by 7%, which is an insane number. The U.S. average is 2%. I just raised rents by 7%.

Jacob: Well, like you say, you’re following the numbers. That’s what makes sense, right?

Neal: Absolutely. I’m super passionate about this because, guys, it is not that hard to make money in real estate, but you’ve just got to be focused on the numbers. We do such a good job in real estate of gathering the numbers and then doing a great job of ignoring them when it pleases us because we get lazy.

The data today is out there. It is available. Maybe, in an hour, all of a sudden you can be an expert. One hour of searching, but then take that and say, “I’m not going to just walk away simply because the best city happens to be 2,000 miles away,” and then there’s this other city that’s not in this list, but it happens to be 100 miles away and my broker sent me a deal there, so I’m going to take a look at that one.” That is not data-driven investing. That’s just you doing lip service for data.

Jacob: Yes, sure. What recommendations would you have to people who are interested in maybe making that transition like you did from those smaller multifamilies to larger multifamilies? What piece of advice would you have for those people, whether in terms of looking at different markets, how to raise their first capital, anything like that?

Neal: Well, firstly, I’d tell you, be very careful. You’re coming in at the end of a cycle. Established people are overpaying and everybody is overpaying. People ask me, “Are you overpaying?” “Yes, I am.” And they’re like, “Really? You’re overpaying for everything?” “Yes, I am.” I’m courageous enough to say that and I have strategies, which my investors know about, to get the higher returns because I have to overpay because there are only two options right now in the market. Overpay, or sit on the sidelines.

If you’re a patient sort of person, this may be a good time to sit on the sidelines for the next 12 months for the large multifamilies.

The small multifamily market is very interesting. It has a much wider range of deals between really awesome and horrible. The big multifamily market, you can’t get really awesome deals and you really can’t get horrible either, because everybody kind of knows what they’re doing. They’re underwriting, they’re paying professionals, so that the range is very narrow right now. It’s kind of weighted towards overpayment whereas with small multifamily, you can still get great deals.

My advice for you for small multifamily is, please make sure that if you’re going into a market that’s offering you a really, really good going-in price, like an 8-cap, 9-cap, 10-cap and you’re like, “Wow! This is cheap,” please ask yourself this one question: Why is it cheap? We’re in the ninth year of a cycle. Every metro in the United States, even the rust belt, are doing really well. Unemployment is super low; job growth is phenomenal in our country. Why is it cheap?

The answer is, that metro is doing so poorly that whenever the next recession hits, it’s going to go back to its long-term trend line of job decline, of population decline, of cap-rate increase. Then you won’t have a way to exit. You will do really well on the buy, you’ll do really well on the cash flow, and then you’re going to be stuck there for a long time because you can’t exit.

Jacob: Neal, a question for you. In this context, what does small multifamily mean to you?

Neal: 5 to 30 units. I think 5 to 30 units is an area where you can get in and put in some sweat equity and do some beautiful rehab and get some amazing returns that I can’t even touch. Honestly, the percentage returns that are in the 5 to 30 that you can get for yourself or your investors is not something that I can touch, but there’s no scale there, right?

But when you’re starting out, you’re not worried about scale, you’re worried about track record. You can give 30 or 40% annualized to investors if you buy it for small multifamily. By the time I’m buying a $10 or 20 million range, you can’t really get the 30 or 40% returns, you’re pushing for 20.

Jacob: Yeah, sure. Yeah, that makes a lot of sense. And you bring up a good point about looking at these markets and why are these properties a lot cheaper than the larger markets? Well, you have to ask yourself, what’s the projection look like? Right? Like earlier we were talking about we don’t care what it’s doing right now. We care what it’s going to be doing in 12 months, in 24 months, when that property is actually ours.

Neal: Yep. Those sorts of things are very important. One of the easiest tips I can give you is open Google and type in “population space,” whatever city you’re interested in. Google will give you a very nice trend line. It’s going to give you a trend line of population growth for cities like Columbus and decline for cities like Cleveland. In my mind, if Cleveland has been declining for the last three decades, are you willing to bet your investor and your future that it will stop declining? You want to see that trend. I keep hearing Detroit is coming back. Show me one point between 1959 and today when Detroit’s population stopped declining even for a year. Show me one, one single.

Jacob: That’s true.

Neal:Why are people telling me Detroit is coming back? This is a city that people are running away from. The only thing that’s changed is they are running away slightly slower. There’s less of them running away every year. Is that the reason to go and invest in a city? Would you put your own money in there?

Jacob: It doesn’t sound like it.

Neal: No. It doesn’t make any sense to me. That doesn’t mean that there’s no money to be made in Detroit though. So, I tell people, “If you live in Detroit, then it makes sense for you to invest there because you’re going to get high cap rates and you can run around to those sorts of properties.”

But if you live in California or if you live in the East Coast, why would you go to Detroit? That’s a really difficult market to deal with, extremely tenant-friendly laws. It makes no sense.

Jacob: Yeah. Population growth is an easy metric to find searchable on Google. Whatever metrics can a beginner easily find out there and what numbers should they concern them with?

Neal: Use Wikipedia and look at what are the fastest-growing states in the country? Fast-growing states in the U.S., search for that, you will get information. I can tell you right now, number one fastest-growing state in the country in percentage is Idaho, followed by Utah and Arizona, and also Nevada. Those are four states that are growing really, really fast. Amazing trends.

Then if you look at number of people, not percentages, you can’t beat Florida. The number of people that move to Florida every day, thousands of them, is absolute insanity. It’s very hard to lose when a state is stealing population from 49 other states. Very, very hard to lose in the long run.

On the other hand, you have states that are losing people like crazy. Don’t invest in Wyoming. Do you have any idea what percentage of people Wyoming loses each year? I don’t know who’s going to be left there in 20 years.

Jacob: Well, in this context, how vital is looking at percentages, right? Because say the population of Idaho is, I don’t know, let’s call it—

Neal: Two million.

Jacob: Two million? That’s not exactly comparable to saying like 100,000 people every month are moving to Florida. You’re comparing apples to oranges there, percentages to real numbers.

Neal: You’re absolutely right. When you’re looking at percentages, don’t make a decision the first time you look at it. When you’re looking at percentages, keep looking for at least a year or two to see a trend there.

You’re right. Let’s say Idaho is small—it’s 1.7 million, actually, the population of Idaho. Let’s say a major company moves from San Francisco to Boise. It’s going to bring along 5,000 jobs, so it’s going to create this massive spike in Idaho, which is going to settle after three to six months. If you’re looking at percentages for smaller states, you’ve got to follow it for a year or two.

Just so you know, I’ve ranked Boise as the number one place in the U.S. to invest in for two successive years, ’18 and ’19, because it is sustaining the spike. It is staying at that very high percentage level where the population growth is extremely high.

In my mind, Idaho and Utah are small states that are doing phenomenally well, because they’ve been doing it for year after year after year. Whereas Florida, just in terms of raw numbers, is insanely good and beats even Texas. Texas comes close, but Florida beats it.

Jacob: I know you’re out in California, so tell us what’s your take on the California market? There’s also a lot of listeners to this podcast that live there, so I’m sure people are interested in hearing your perspective on that state.

Neal: I love California. I think it’s the most amazing place in the U.S. I think that they’re going to have a really tough time. I live in the San Francisco Bay Area and I think that the Bay Area is the most unique place in the world, not just in the U.S. I think it is the most amazing place in the U.S., but California is not the Bay Area. It’s a population of 40 million people. It is losing population. Most major metros have massive affordability problems. We are increasing the population of people that are homeless. It’s spiking like crazy in major cities like San Francisco and Los Angeles. Home prices are getting to the point where it just makes no sense.

Also, now with the 2018 tax changes, basically my home, this home behind me that you see, I’m paying $17,000 in property taxes. Until last year, I was writing them off. This year, I’m not, $17,000 a year because tax laws change. Well, that really hurts when you have a really expensive house here and there’s only expensive homes in the San Francisco Area, right?

Jacob: Oh my…[laughs] .

Neal: Yeah. I mean, our garages cost more than homes in Dallas. It’s insanely expensive to live here and that is going to be a challenge.

Also, as long as the Republican party stays in power, the one thing that’s been helping California, which is inward migration, well, it’s not helping anymore. Google this: For the first time since really we started keeping records, the San Francisco Bay Area lost population. The most innovative place on earth lost population. It was a very tiny number of people, but I think it’s a harbinger of what is to come.

Jacob: Yeah, really interesting there. Neal, it’s been a lot of fun talking with you, getting your take as a data scientist and if someone with a technology background and just a numbers-driven focus of real investment, I mean, like we said at the beginning of the show, that’s what it’s all about, right?

Understanding the numbers is really the most important thing you can do as a real estate investor because that’s what you’re doing it for, is the numbers, the dollars. Yeah, it’s really interesting to see your take and just kind of understand your perspective on things.

Neal: Thank you. Glad you enjoyed it.

Jacob: As we’re wrapping up here, we’ve got a lightening round we’d like to end with. It’s just a series of questions we ask every one of our guests. Are you up for it?

Neal: Sure. Go for it.

Jacob: All right. The first question is, what was your biggest hurdle getting started investing in real estate and then what did you do to overcome that?

Neal: I think the biggest hurdle was not really knowing anything about real estate. I was not from a broker-type of background. That’s how a lot of people get in. I think I did it by offering my services for free to people that knew more. By doing that and doing it without any expectation of them giving back, I was able to get really good mentors.

It’s all about putting the first foot forward. I don’t believe in asking people to mentor you. I believe in showing people some of the things that they’re not doing well.

For example, one of the syndicators had a horrible website. It was broken, had been broken for a long time. I went to him and said, “Can I work with your staff to fix your website?” He was like, “That’s awesome. Yeah, go ahead and do it,” and he introduced me to somebody. We fixed the website in two days. He had forms that were broken, all of a sudden he started getting more forms from investors. He was really happy, and he said, “What do you need? What can I teach you?”

Jacob: Yeah, good. I love that. Neal, do you have a personal habit that contributes to your success?

Neal: The key habit that I have is that I plan at the end of a day. When I end my day, I look at the next day and I spend five minutes planning. I think it’s a very powerful habit.

Jacob: Awesome. Yeah, really important. Neal, do you have an online resource that you find valuable in your day to day?

Neal: Well, my own website, MultifamilyU.com. That’s multifamily, following by the letter U, dot com. I do about, between 50 and 100 webinars every year with amazing people. These webinars are different from podcasts. Podcasts are great because you can take them into your car and listen to them. But when you want to dive deeper into data or deeper into content, it’s great to have webinars. Check out MultifamilyU.com.

For those of you that are interested in what will happen to apartments over the next 10 years, the best resource is We, W-E, Are, A-R-E, WeAreApartments.org, with an S. WeAreApartments.org. This is an insane website. It’s like looking through a crystal ball at the future of apartments.

Jacob: Interesting, I never heard of that. WeAreApartments.org. All right, cool!

Well, Neal, what book would you recommend to the listeners and why?

Neal: I’d recommend The One Thing. I find that people are constantly trying to do 86,000 different things and hoping to excel at them. I do the same thing. I read the book and I re-read it to bring me back to the fact that what really matters is the one thing. The one thing today. The one thing this week. The one thing this month. The one thing this quarter. Having that focus is so incredible. Every time I read the book I feel energized.

Jacob: Yeah, I love it. It’s a great book by Gary Keller and Jay Papasan, if I’m not mistaken.

Speaker: Yeah, you got it right. I’m sitting back here.

Jacob: Yeah, that’s right. Last question in the lightening round: If you were to give advice to your 20-year-old self to get started in investing in real estate, what would you go back and tell yourself?

Neal:Don’t buy the real estate, don’t drink the real estate Kool-Aid. This industry has an incredible number of people that throw stuff out that they don’t truly mean. The key thing is to maintain your level of ethics. That will get you much, much, much further, but when you start out, it will slow you down. Let it slow you down because in the long run, you’re going to benefit much more. Don’t sell yourself out, especially not in this industry.

Jacob: Elaborate a little bit what you mean by that, Neal. Don’t drink the Kool-Aid, stick to your ethics, what do you mean there?

Neal: There’s people out there selling something. They don’t give you both sides of that picture. They’re just focused on giving you one side of the picture. This is so common in real estate. I see this in other areas, but in real estate, it seems to be pandemic to think for everyone to say that whatever they’re selling is truly awesome and whatever they’re not selling is not. In some industries, this is pandemic. Car sales and insurance and real estate. I see a lot of that. I do not see it as bad in other areas, so my advice to my 20-year-old is, “When you get in, you’re going to see this, and you’re going to think that this is normal. It’s not normal.”

Jacob: Yeah, okay. I definitely understand. I see what you’re saying there now. Really good stuff.

Neal, you’re not a stranger to the microphone. You actually help a lot of people invest in real estate through your platform you just mentioned, MultifamilyU. Tell us a little bit about what people can find there.

Neal: Sure. MultifamilyU.com —once again, with the letter U after the word Multifamily—is a platform where we do 100 webinars a year, with people that are specific to multifamily. Brokers and lenders. How to get loans for a $5 million project? It’s very different from getting a loan for a single family.

There’s an incredible amount of education for those that want to jump in and become a syndicator like me, they can take a bootcamp. It’s a paid bootcamp, but it’s about a 20th of what it would cost you to buy a bootcamp elsewhere in the industry. I keep that price very low because I’m building a nationwide network.

I’m also building a network of Meetup Groups, 100 Meetup Groups throughout the United States that you can sign up for. Those are all powerful things.

For those of you that are looking for passive investment, to make passive investments, contact us. My email address is Neal, N-E-A-L. That’s not N-E-I-L, but N-E-A-L, at MultifamilyU.com. Contact us and we’ll basically show you the sort of projects that hundreds of investors are investing in and getting passive income from.

Hey Neal, it’s been a lot of fun having you on. As we’re wrapping up here, any parting piece of advice you’d like to leave with our audience members?

Neal: Yeah. Make sure that whatever you do, make sure it makes you happy. You’re not going to be at your best if it’s not making you happy.

Jacob: I love it. Well, Neal, hey, thanks so much for coming on the show today. It’s been a lot of fun. Look forward to having you back on in the future and see if those future market predictions we made are going to become accurate.

Neal: Sounds good.

Jacob: All right.

Neal: I’m looking forward to that. Thank so much.

Jacob: Thanks, Neal, take care.

Neal: I’m looking forward to that. Thanks so much.

Jacob: Thanks, Neal. Take care.

Neal: Bye.

[Music begins.]

Jacob: All right, that wraps up this week’s episode with our guest, Neal Bawa. I hope you enjoyed today’s episode. As you can tell, Neal is a super enthusiastic and really down-to-earth guy. It’s interesting to see his perspective on the different markets around the U.S. and what the numbers have to say about those.

If you’d like to learn more about anything we mentioned on today’s show, you can find that in the show notes with all of those resources. Of course, feel free to reach out to Neal if you have any questions. He’s obviously a very approachable and relatable person, so feel free to reach out to him.

As always, if you have any questions or comments or want to learn more about what I’m doing, you can do so at www.Jacob.Ayers.com. Until next week, engineer the lifestyle you want.

You’ve been listening to The Real Estate Way to Wealth and Freedom Podcast, providing you actionable content to build your real estate empire. Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for personal advice. The opinions of guests are their own. Information is not guaranteed. All investment strategies have a potential for profit or loss. The host is operating on behalf of The Real Estate Way to Wealth and Freedom, LLC, exclusively.

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The purpose of Multifamily U is to provide education and networking opportunities for real estate investors in order to allow investors to make informed decisions. Multifamily U makes no endorsement, warranty or guaranty of any kind whatsoever with respect to the opinions, information, services or products mentioned or promoted by any of the speakers, presenters or sponsors of Multifamily U programs or events. Members, attendees and participants are expected to do their own individual due diligence before making any investment decisions, and are strongly encouraged to consult with their own legal and tax professionals. Neither Multifamily U nor its principals, employees, agents or volunteers are liable for any claims of damages or losses, direct or indirect, arising from any transactions of any kind involving members, attendees or any participant of a Multifamily U program or event.

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